Life Insurance: Deepak Sood

My insurance agent told me about an endowment plan and a money-back plan, both offered by a private sector life insurance company. I am not clear about the difference between the two. Also, for a life cover, are these better than term plans?
Endowment plans are those in which the sum assured plus accumulated bonuses, if any, are payable on completion of the policy term. A money-back plan is also an endowment plan, in which a certain fixed proportion of the sum assured is payable at fixed intervals during the policy term. The remaining portion of sum assured plus bonuses accumulated, if any, is paid on completion of the term. In case of an untimely death, the full sum assured plus bonus accumulated is payable in both types of products. The premium rate of money-back plans is higher when compared to an endowment plan, as part of the survival benefit is paid earlier under the former. For a pure life cover, term plans are the best products.

How do life insurers calculate bonus on sum assured? Can I offset it with the premium?
There are various types of bonuses like simple reversionary, compound reversionary, cash bonus and so on. Different types of bonuses give different benefit additions. A policyholder should look into the terms of the policy document for the type of bonus offered.

Simple reversionary bonus rates are applied on the sum assured of the policy as in Rs 35 per Rs 1,000 sum assured in a year. In case of compound reversionary bonuses, the rate is applied to the sum of the sum assured and bonuses added already under the policy. Such bonuses added in the year are not payable immediately to the policyholder in cash. These are added to the sum assured and already attached bonuses and are payable on death or at maturity. So, the customer can’t offset such bonus additions with the premium payable.

What is a double accident life insurance policy? How can one get the benefit in an existing life insurance policy?
A double accident life insurance policy provides for the payment of an additional amount equal to the sum assured in case of death of the policyholder due to an accident. The death claim under the double accident benefit, thus, becomes twice the normal sum insured. Such a cover is provided either as an optional rider or as an inbuilt benefit. If it is a rider, the policyholder has to pay a small additional premium. If it is an inbuilt benefit, the premium for the base policy includes the premium for accident benefit.

Such policies also provide cover for disabilities, though sometimes an additional disability rider is required. If, due to an accident, a permanent and total disability occurs to the life assured, all subsequent premiums are waived and the policy kept in full force.

Some additional benefits are also given in case of partial and total disability, and vary for different life insurers. If the accident benefit has not been opted for under an existing policy, then it may or may not be added subsequently, depending on whether the plan allows such a later addition. In principle, subsequent addition of accident benefit is permitted under an existing policy. You may apply for it to the insurer.